Role and Importance of Agricultural Finance ,problems in credit delivery to agriculture Agricultural finance generally means studying, examining and analyzing the functional aspects pertaining to farm business which is the core sector of the country. The financial aspects in agriculture include capital required for agriculture, the way in which funds are raised and the pattern of utilization of funds so raised. Murray (1953) defined Agricultural finance is an economic study of borrowing funds by farmers, of the organization and operation of farm lending agencies and of society’s interest in credit for agriculture. While Tandon and Dhondyal (1962) defined Agricultural finance as a branch of agricultural economics which deals with the provision and management of bank services and financial resources related to individual farm units. Thus it implies that 1. All the farmers should be purveyed requisite finance. 2. Finance should stimulate and enhance the productivity of farm scarce resources & 3. It has a vital and catalytic role for agro-economic development of farmers. Agricultural finance can be viewed at both a. Macro level: This deals with different sources of raising funds for agriculture as a whole in the economy and also concerned with lending procedures, rules regulations, monitoring and controlling procedures of different agricultural credit institutions (Financing at macro level) b. Micro level: Refers to financial management of the individual farm business unit and it is concerned with the study as to how the individual farmer considers various sources of credit, quantum of credit to be borrowed from each source and how he allocates the same among the alternative uses within the farm. It also concern with future use of funds. In sum, macro finance deals with aspects relating to credit needs of agricultural sector, the terms and conditions under which the credit is available and the methods of using the total credit for the development of agriculture. On the contrary, micro finance refers to financial management of the individual farm business. Importance of Agricultural Finance: 1. Assumes vital role and importance in agro-socio-economic development of country both at micro and aggregate level. 2. It’s catalytic role strengthens the farming business and augments the resource productivity – New seeds, when combined with purchased inputs like fertilizers, and PPC in requisite proportions results in higher productivity of resources. So application of inputs obtained through farm finance helps boost agricultural productivity. 3. Ascertain to farm assets and farm supporting infrastructure provided by large scale financial investment activities entail increased farm income levels, leading to overall improvement in the living standards of rural. 4. It also contributes to reduction in regional economic imbalances and is equally good at narrowing down the inter-farm asset and wealth variations. Farm finance is not just a science to manage the money, but is an applied science of allocating scarce farm resource to derive the optimum output. It is a lever with forward and backward linkages to the economic development both at micro and macro levels (Muniraj, 1987). Thus, role of agricultural finance, in strengthening and development of both input and output markets in agriculture is crucial and significant. 5. Indian agriculture is still traditional, subsistence and stagnant in nature, hence agricultural finance is needed to create the supporting infrastructure for adoption of new technologies. Massive investment is needed to carryout major and minor irrigation projects, rural electrification and energization, installation of fertilizer and chemical plants, execution of agricultural programmes and poverty alleviation programmes in the country. Need of Agricultural Finance: 1. Due to very low amount of own savings and capital to invest in agriculture. 2. High proportion of family expenditure, hence purchase of off farm inputs suffers. 3. Tiny holdings of farmers that too growing mostly the food crops and farming is subsistence in nature. Hence the marketable surplus will be very less, risk averting, more demand for consumption credit and inability to offer the security for finance. 4. The non-equity capital assumes more importance in providing needed liquidity to have access to the resources. 5. Credit itself is not income but it leads to acquire income by investing in opportunities otherwise ended up in additional consumption. 6. It acts as lever for development. It expended in the interest of the farmers who comes again and again and not one time activity. In addition to this generally credit is needed for 7. Repayment of old debts: as some times due to urgency borrowed from money lenders who charges high rate of interest but after words go for institutional agencies. 8. Expenditure on social customs, litigation, marriages etc 9. Credit is also needed for consumption purposes under adverse conditions. 10. Credit is needed for undertaking any productive activities. Problems of Agricultural Finance(problems in credit delivery to agriculture): In recent time, government of India has taken several measures to raise the credit flow to agriculture. Financing of agricultural sector is facing several problems like. 1. Limited coverage and continuing dependence on money lenders 2. Complicated procedures of loans so as farmers are illiterates, unable to furnish the requisite information. 3. Wastage of time and manpower in getting loan facility on account of repeated visits. 4. Lack of coordination between different agents in credit planning. 5. Mis-utilisation of loans for unproductive purposes and there exists gap between disbursement and requirement of loan. 6. Inefficient administration and they do not work for betterment of farming community. 7. Regional imbalances in supply of credit leading to poor productivity. 8. Mounting over dues due to stagnation and frequent occurrences of natural calamities. 9. No provision of consumption credit which is only limited to urban areas and hence farmers again go money lenders who suck the blood of farmers by malpractices. 10. Low rate of share in development on account of low productivity and leading to low rate of saving and investment. 11. Predominance of private agencies. If larger production is the aim money lender’s credit is unsuitable
Posted on: Mon, 24 Nov 2014 23:06:02 +0000
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